While coronavirus concerns are weighing on CSX Corporation’s CSX volumes, the company is being aided by cost-control measures. Its sound liquidity position is also providing a cushion against coronavirus-related adversities.
The company’s consistent cost-control measures are supporting its bottom line. Increased operational efficiency, low fuel prices, reduction in labor and fringe expenses, as well as coronavirus-led weak volumes have caused 13% year-over-year decline in CSX’s operating expenses in the first half of 2020.
Expansion of the company’s intermodal service offering to provide customers with a faster and more efficient service is also noteworthy. The company, along with Canadian National, offers an intermodal service between the ports of Philadelphia, PA; New York, New Jersey and the New York City metropolitan area served by the company and Canadian National's greater Montreal and Southern Ontario areas.
CSX Corporation Price and Consensus
CSX Corporation price-consensus-chart | CSX Corporation Quote
CSX’s commitment to reward shareholders despite adversities is another positive. In the first six months of 2020, it repurchased 10 million shares for $616 million. This February, the company announced an 8% dividend hike to 26 cents per share.
Moreover, CSX's return on equity (ROE) supports its growth potential. The ROE (expressed as a percentage) for CSX is currently 24.2 compared with 20.2 for the S&P 500 composite, of which CSX is a key member. This implies the company is efficient in utilizing shareholders' funds.
The company’s sound liquidity position is highlighted by the fact that its cash and cash equivalents stood at $2.59 billion at the end of the second quarter, much higher than the current debt of $378 million, implying that the company has sufficient cash to meet its current debt obligations. Additionally, the current ratio (a measure of liquidity) for CSX was pegged at 1.62 at the end of the June quarter, higher than its industry's reading of 1.14. A high current ratio is a sign that the company can easily pay off its current liabilities by utilizing its current assets.
Surrounded by the optimism, the Zacks Consensus Estimate for CSX’s 2020 earnings has been revised upward by approximately 1% in the last 60 days.
In light of the positives, we believe investors should hold onto the CSX stock for now, as is suggested by its Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Transportation sector are Expeditors International of Washington Inc EXPD, Old Dominion Freight Line Inc ODFL and Knight-Swift Transportation Holdings Inc KNX. While Expeditors carries a Zacks Rank #2 (Buy), Old Dominion and Knight-Swift sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Expeditors, Old Dominion and Knight-Swift have rallied more than 19%, 58% and 12% respectively so far this year.
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